Intel Corporation (NASDAQ: INTC) just delivered its strongest quarterly revenue growth in over fifteen years. Q2 revenue hit $16.1B, a 25% year-over-year surge that crushed the $14.4B consensus estimate. Non-GAAP EPS swung to $0.42 from a $(0.10) loss a year ago, also well ahead of the $0.21 estimate. The headline GAAP loss of $(2.16) per share is a distraction. It reflects a $12.5B non-cash mark-to-market charge on Escrowed Shares tied to the CHIPS Act, not operating performance.
Two businesses drove the beat. Data Center and AI (DCAI) revenue jumped 59% to $6.3B, fueled by Xeon processor demand and new rack-scale AI infrastructure wins. Intel Foundry revenue grew 31% to $5.8B. Intel 18A-P entered risk production, and high-volume manufacturing of Panther Lake processors using High NA EUV is underway. Client Computing and Physical AI Group (CCPG) grew a more modest 13% to $8.9B. That still represents $1B of incremental revenue year-over-year.
The operating leverage is the real story. And it's structural, not one-off. GAAP gross margin expanded 12.9 percentage points to 40.4%; non-GAAP gross margin hit 41.8%, up 12.1 points. Operating margin swung from negative 24.7% to positive 11.1% on a GAAP basis. CFO Dave Zinsner credited the improvement to volume upside driven by higher factory yields and improved cycle times. That's a supply-side margin gain, not a pricing or mix benefit. It suggests the margin recovery has legs as long as demand holds.
Foundry remains the swing factor. The segment posted an operating loss of $2.1B on $5.8B of revenue, an improvement from the $3.2B loss on $4.4B of revenue a year ago. The loss is narrowing as volume ramps, but the segment is still burning cash at a rate that demands attention. Intel generated $7.0B in cash from operations in Q2. Adjusted free cash flow, however, was negative $8.4B, weighed down by $2.7B in gross capital expenditures and $12.2B in net partner distributions. The €5B investment to expand manufacturing capacity for Xeon 6 and next-gen processors adds to the capex burden.
Q3 guidance implies the momentum continues but at a moderated pace. Revenue of $15.8B to $16.8B at the midpoint represents roughly flat sequential revenue, reasonable after a 25% YoY surge. Non-GAAP EPS guidance of $0.38 is below the $0.42 actual but still represents a sharp year-over-year improvement. Management's guidance for GAAP gross margin of 41.0% and non-GAAP gross margin of 42.0% suggests the margin recovery continues, albeit with less tailwind from volume leverage.
The buyback is not a factor. Intel did not announce any share repurchase activity, and diluted share count was flat sequentially at 5,104 million. The capital allocation story remains one of reinvestment: $6.2B in capex in Q2 alone, plus the €5B European expansion. With $29.7B in cash and short-term investments against $50.5B in total debt, the balance sheet is manageable but not loose.
What to watch next quarter: whether DCAI growth can sustain its 59% pace as the AI infrastructure buildout matures, and whether Foundry margins can continue to narrow their loss as Intel 18A ramps into high-volume production. The Q3 guide suggests management sees a steady state, not acceleration. For a company that just posted its best growth in fifteen years, steady is still a strong signal.